These 5 U.S. Cities Have the Lowest Tax Burdens

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Source: Getty Images

Source: Getty Images

In December 2013, the Office of Revenue Analysis for the District of Columbia released a report on the tax rates and tax burdens of the largest city in each state in the country. The report is designed to give policymakers and curious wonks an idea of how D.C. tax environment compares against the tax environment in other major cities in the U.S., but we can use the image it contains of the national tax situation — as described by the largest city in each state — to look at which states have the lowest general tax burden and why.

For a hypothetical family of three earning $50,000 per year, the average local tax burden was $4,887, or 9.8 percent of income. The range of this burden stretches from 4.4 percent at the low end to 19.3 percent at the high end. The D.C. Office of Revenue Analysis highlights a couple of reasons why tax burdens can vary so greatly between the queen cities of different states. These reasons include variable demand for government services (whether garbage collection is a private or public service), differences in the cost of living, the size and health of the tax base, and even geography. As half the country is well aware, snow and ice removal is expensive.

We’ll break out the results for different income levels in each city, but lowest five were determined using a hypothetical family of three earning $50,000 in 2012. Keep in mind that the data is for state and local taxes only, federal taxes are excluded.

1. Jacksonville, Florida

Here’s the cool thing about Jacksonville: there’s no local income tax. In fact, there’s no state-level income tax at all in Florida. A hypothetical family of three earning $50,000 per year will pay zero dollars in income tax to the state or the local government compared to a national average income tax bill of about $1,064 in 2012 ($1,008 median.)

Here’s another cool thing about Jacksonville: it doesn’t compensate for not having a local income tax by jacking up property, sales, or auto taxes. In this city, a hypothetical family of three earning $50,000 paid taxes below the national average in all these categories, bearing an average total tax burden of just $3,241 in 2012, or about 6.5 percent of income. This compares against an average tax burden of $4,887, or 9.8 percent of income.

The tax burden for a hypothetical family of three earning $150,000 is 6.7 percent of income, which compares against an average of 10.9 percent among all queen cities. For a hypothetical family of three earning $25,000 the tax burden is 12.8 percent of income, above the average of 12.7 percent.

2. Anchorage, Alaska

Anchorage is another city that doesn’t charge local income tax in another state that doesn’t charge a state income tax, putting the city about $1,000 ahead of the average taxpayer living in the queen city of any state. Most of the city’s income comes in the form of property taxes, for which a hypothetical family of three earning $50,000 per year paid an average of $2,879 in 2012, or about 91 percent of the family’s tax burden. The family had an average tax burden of $3,161, or 6.3 percent of income. This compares against an average tax burden of $4,887, or 9.8 percent of income.

The tax burden for a hypothetical family of three earning $150,00 is 6.5 percent, which compares against an average of 10.9 percent among all queen cities. For a hypothetical family of three earning $25,000 the tax burden is 9.5 percent of income, below the average of 12.7 percent.

3. Las Vegas, Nevada

Las Vegas is yet another city that doesn’t charge local income tax in yet another state that doesn’t charge a state income tax. There are seven states — Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming — that don’t charge a state-level income tax (two states, Tennessee and New Hampshire, charge a limited income tax on only dividend and interest income).

In 2012, a hypothetical family of three earning $50,000 per year living in Las Vegas had a tax burden of $3,038, or 6.1 percent of income. This compares against an average tax burden of $4,887, or 9.8 percent of income. The hypothetical family paid below-average taxes on everything except their automobile, paying about 33 percent higher than the average.

The tax burden for a hypothetical family of three earning $150,000 per year is 5.5 percent of income, which compares against an average of 10.9 percent among all queen cities. For a hypothetical family of three earning $25,000 the tax burden is 13 percent of income, above the average of 12.7 percent.

2. Cheyenne, Wyoming

With a tax burden of $2,303, a hypothetical family of three earning $50,000 per year would owe just 4.6 percent of income to the state and local government. Like most of the other cities with the lowest overall tax burden, Cheyenne charges no local income tax, and residents pay below-average property, sales, and auto taxes.

The tax burden for a hypothetical family of three earning $150,000 per year is 4.2 percent of income, which compares against an average of 10.9 percent among all queen cities. For a hypothetical family of three earning $25,000 the tax burden is 9.9 percent, below the average of 12.7 percent. Across all income levels taken together, Cheyenne is the city with the lowest individual tax burden.

1. Billings, Montana

Billings has the lowest city tax burden of any queen city in the country. A hypothetical family of three earning $50,000 would pay just $2,211 to state and local government, or 4.4 percent of income. It’s worth pointing out that unlike the other members of the bottom five club, Billings is in a state that charges income tax. The local burden is low, just 64 percent of the average burden for a queen city, but what really sets the city apart is its incredibly low sales tax burden. The hypothetical family’s sales tax burden is just $35, less than half a percent of the average.

The tax burden for a hypothetical family of three earning $150,000 per year is 7.1 percent, which compares against an average of 10.9 percent among all queen cities. For a hypothetical family of three earning $25,000 the tax burden is 9.4 percent, below the average of 12.7 percent. Both low- and high-income residents pay below-average taxes in Billings, but across all income levels Billings is only the city with the third-lowest tax burden, falling behind Las Vegas at number two and Cheyenne at number one.

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